Gold, silver may still shine

Gold is back in a big fashion as an investment option after recent gains, and analysts say there could be more left in it — and as a relatively risk-free option that could outstrip bank deposits or other short-term instruments.

Gold is back in a big fashion as an investment option after recent gains, and analysts say there could be more left in it — and as a relatively risk-free option that could outstrip bank deposits or other short-term instruments.

Gold and silver are expected to generate returns in the range of 18-22% in 2011, when stock market is expect to remain volatile and inflation will dent the returns from bank’s fixed deposit.

“Gold is expected give returns in the range of 18%-20%, while silver may generate 20%-22% in 2011, on the back of a strong demand,” says Ritesh Jain, head, fixed income, Canara Robeco.

Of the total amount allotted for fixed income investment, one should invest 30% in gold and silver. Between gold and silver, 70 % should be in yellow, he said.

The demand for gold will continue to be strong in India, the largest jewellery market in the world. In 2009, India bought around 551 tonnes of gold, while by October 2010, the figure was around 730 tonnes. Jwellery, which constitute 75% of the total Indian demand, will continue to drive the demand for gold.

“Gold will continue to dominate the investment space in 2011,” says Ajay Mitra, managing director, India and Middle East, World Gold Council. “Price is no longer the deterrent for the buyer. Now the dialogue is no more on the price, but on it’s being a safe heaven for investors in the time of volatility in stock market and weak recovery in global recovery.”

Some experts prefer silver to gold. “Gold has seen a rally in 2010 and it looks that at this point the price of gold may be moving towards what is more than justified,” says Veer Sardesai, a Pune-based financial planner.

“We would request investor to look at silver as it appears to be an attractive bet,” he adds.

Sardesai, however, cautioned that despite gold being an attractive investment it should not be compared to the capital markets as far as returns are concerned. “Investors should invest in precious metals to hedge themselves against volatility in other investments but should not compare the returns. As there is a tax angle in to the investments, where if you sell your gold investments after 12 months you may end up paying tax,” said Sardesai.

He suggests that the ideal investment for any high networth individual in precious metals should not be more than 5% of his total net worth.